Kurien vs Government of Kerala

Madhavan Nair, J.—The appellant was an abkari contractor in the year 1120 M. E. (1944-45) for vending "Cocobrandy" in the newly opened arrack shop at Vaikom. The Auction list showing the confirmation of the privilege on the plaintiff by the Excise Commissioner is Ext. I in the case. It contains an undertaking by the plaintiff to sell 43 gallons of the liquor every month and in default to pay damages equivalent to the commission and other dues to Government in respect of the short fall in the monthly sales.

The acceptance of the plaintiff''s bid by the Excise Commissioner is in the following words:

Confirmed in the name of P. P. Kurien (the plaintiff herein) at a commission of 211/2 Rs. per gallon on the undertaking that the present consumption of C. B. will be kept up and the bidder undertaking to keep it up by an earnest deposit amounting to the commission due on one month''s average consumption (on the last 3 months). This deposit will be independent of the 50 Rs. deposit under the sale notice.

The plaintiff having failed to keep up the guaranteed sale and consequently the sale of the liquor in the shop having short fallen 269 gallons in the year, the department took coercive steps, under the Revenue Recovery Act, to realize damages amounting to Rs. Nine thousand odd, and realized Rs. 3,500/- when the plaintiff instituted the present suit against the State for declaration that the order to realize damages from him is illegal, for an injunction to restrain the State from proceeding further with the levy and for recovery of the sum of Rs. 3500/- already realized. In defense thereto, the State claimed the entire levy to be lawful. The Principal Subordinate Judge, Alleppey, held the plaintiff bound by his undertaking in Ext. I, and therefore, dismissed the suit with costs. The plaintiff has come up in appeal against the same. When the appeal was heard last week I felt suspicious of the legality of the undertaking that formed the basis of the suit and therefore adjourned the hearing to today for the Government pleader to convince me of the same.

The learned Government Pleader pointed out that the legality of the contract in Ext. I has not been disputed so far by the plaintiff-licensee. But the matter cannot rest on the pleadings. It is well settled that if the illegality of an agreement appears in its very terms the Court cannot afford to overlook it and sanction its enforcement. The learned authors Pollock and Mulla in their well known treatise on Contract (8th Edition, page 199) have summarized the position thus:-

The facts showing illegality must be pleaded, but when the illegality appears from the plaintiff''s own evidence, or is otherwise duly brought to the notice of the Court, it is the duty of the Court to give effect to the fact thus brought to its notice, and to give judgment for the defendant, although the illegality is not raised by the pleadings.................. In N. W. Salt Co. v. Electrolytic Alkali Co. (1914 Appeal Cases 461) the House of Lords laid down that if an agreement is ex facie illegal a Court will not enforce it whether the illegality is pleaded or not.

As early as 1775, Lord Mansfield had held in Holman v. Johnson (1 Cowp. 341) that:

When it is apparent on the face of a contract that it is unlawful, it is the duty of the Judge himself to take the objection, and that, too, whether the parties take or waive the objection.

That dictum has since been consistently acted on in the English Courts. The following decisions show that it has been the law in India too. United Industries v. Moideen (A. I. R. 1956 T. C. 101), Kotharaju Narayana Rao Vs. Tekumalla Ramachandra Rao, , Gulabchand v. Kudilal ( A. 1. R. 1959 Madhya Pradesh 151), Appana Radha Sri Krishna Rao Vs. V.K.M. Kodandarama Chetti, , Sewsagar Avasty Vs. Satyanarain Sah and Others, , Immani Appa Rao v. Gollapalli Ramalingamurthi ( A. L R. 1962 S. C. 370).

The learned Government Pleader tried to distinguish that the present suit is not one in enforcement of the agreement and that therefore the rule is not attracted here. It is not disputed that, on the plaintiff''s failure to pay the damages stipulated in Ext. I, Revenue Recovery Proceedings had been taken against him to enforce the agreement. The issue here is of the legality of that enforcement. If the undertaking in Ext. I was unlawful, the State could not have enforced it against the plaintiff, and therefore the suit for injunction to restrain further realizations and for refund of amount already realized becomes justified.

In Sales Tax Officer, Banaras and Others Vs. Kanhaiya Lal Mukundlal Saraf, where the respondent, under a mistake of law, paid sales-tax on forward sales which were not liable to taxation and afterwards claimed refund thereof from the State, the Supreme Court held:

The respondent committed the mistake in thinking that the moneys paid were due when in fact they were not due and that mistake on being established entitled it to recover the same back from the State under S. 72 of the Indian Contract Act.

In the present case the amount was not tax and was recovered by coercive proceedings. The duty to refund is therefore stronger here than in the case that was before the Supreme Court.

The material question, therefore, is whether the agreement in Ext. I to sell 43 gallons of liquor a month or in default thereof to pay damages is unlawful. Section 23 of the Contract Act enacts that the object of an agreement is unlawful if the ''Court regards it as immoral or opposed to public policy'' and that every agreement of which the object is unlawful is void. The words ''immoral'' and ''public policy'' are not defined in the Act. They denote two types of conduct affecting the welfare and depending largely on the current sentiments and developments of the society. Conduct that once commanded universal admiration may become reprehensible in later days, and vice versa. Suttee has become a crime. Separation agreements once regarded as immoral in England is now fully recognized by statute. Conduct approved of by laisses faire capitalism has gone into disrepute in modern days of State Socialism or the ''Welfare State''. Administration of justice to be of vital force and usefulness must conform to the healthy developments of social, political and economical life of the people to be served by it. The Legislature has therefore left the expressions ''immoral'' and ''public policy'' without particular definition, to be determined by the Courts of the day.

The object of the agreement in Ext. I is to compel the plaintiff to sell a minimum of 43 gallons of liquor a month at his shop. It is to compel the customers of the plaintiff''s shop to drink at least 43 gallons a month or if that could not be done to attract more and more customers to the shop to imbibe the liquor habit so as to keep up a minimum distribution of 43 gallons of liquor a month at the shop. If the ''object'' of an agreement is ''the ultimate purpose which the agreement sub-serves'', as has been held in Gulabchand Gambhirmal Vs. Kudilal Govindram and Another, , the object of the instant agreement must be held to be the spread of the liquor habit which has to be described as both ''immoral'' and ''opposed to ''public policy''.

Field J. in Crowley v. Christensen (1890, 34 Law Ed. 620) observed:

There is in this position an assumption of fact which does not exist, that when the liquors are taken in excess the injuries are confined to the party offending. The injury, it is true, first falls upon him in his health, which the habit undermines; in his morals, which it weakens; and in the self-abasement which it creates. But, as it leads to neglect of business and waste of property and general demoralization, it affects those who are immediately connected with and dependent upon him. By the general concurrence of opinion of every civilized and Christian community, there are few sources of crime and misery to society equal to the dram shop, where intoxicating liquors, in small quantities, to be drunk at the time, are sold indiscriminately to all parties applying.

The statistics of every State show a greater amount of crime and misery attributable to the use of ardent spirits obtained at these retail liquor saloons than to any other source. The sale of such liquors in this way has therefore been, at all times, by the Courts of every State, considered as the proper subject of legislative regulation. Not only may a license be exacted from the keeper of the saloon before a glass of his liquors can be thus disposed of, but restrictions may be imposed as to the class of persons to whom they may be sold, and the hours of the day, and the days of the week, on which the saloons may be opened. Their sale in that form may be absolutely prohibited. It is a question of public expediency and public morality, and not of federal law.

The police power of the State is fully competent to regulate the business-to mitigate its evils or to suppress it entirely.................... As it is a business attended with danger to the community, it may, as already said, be entirely prohibited or be permitted under such conditions as will limit to the utmost its evils.

What we find in the instant contract is not the limiting or controlling of the activities of the dram shop but their compulsory propagation. The above observations of Field J., which found entire concurrence with their Lordships of our Supreme Court in Cooverjee B. Bhamcha v. Excise Commissioner (A. I. R. 1954 C. 220), expose well the pernicious effects of the object of the agreement in Ext. I, the public morals it offends and the public policy it contravenes. I could not escape feeling wonderment as I listened to the arguments in support of the agreement in Ext. I and of the action taken by the Government in enforcement thereof coming from the learned Government Pleader representing a Government wedded to a policy of absolute prohibition both by its own laws and by the Constitution. I find the agreement in Ext. I guaranteeing a sale of 43 gallons of Cocobrandy every month unlawful and levy of damages by the State for its breach illegal. The plaintiff is therefore entitled to a decree.

In the result, the decree of the Principal Subordinate Judge is reversed and the suit decreed. As the plaintiff has failed to plead the illegality of the contract which is the salient feature of his cause of action, he has to suffer his costs in this Court, but shall have his costs in the Court of first instance.